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Author Question: What is the principle of minimum differentiation? What will be an ideal ... (Read 57 times)

dejastew

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on: Jun 29, 2018
What is the principle of minimum differentiation?
 
  What will be an ideal response?

Question 2

What is the difference between a money price and a relative price? When the demand and supply model predicts that the price of coffee will rise, is the model predicting that the money price rises or the relative price rises?
 
  What will be an ideal response?


josephsuarez

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Reply #1 on: Jun 29, 2018
Answer to Question 1

The principle of minimum differentiation is the tendency for competitors to make themselves identical to appeal to the maximum number of clients or voters. This principle describes the behavior of political parties as well as that of business firms.

Answer to Question 2

The money price of a good is the number of dollars that must be given up in exchange for it. A relative price is the opportunity cost of a good in terms of another good. A relative price of good X is the quantity good Y that we forgo to get a unit of good X. When the supply-and-demand model predicts that the price of coffee will rise, it is the relative price, that is the model predicts that the price of coffee will rise relative to the average price of other goods. The money price might or might not rise.


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